Management s Discussion & Analysis of Financial Condition and Results of Operations

Management s Discussion & Analysis of Financial Condition and Results of Operations Year Ended 2017 1

Management s Discussion & Analysis of Financial Condition and Results of Operations The following discussion highlights significant factors influencing results of operations and changes in financial position of Liberty Mutual Holding Company Inc., the parent corporation of the Liberty Mutual Insurance group of entities (the "Company" or "LMHC"), for the three and twelve months ended 2017 and 2016. This Management s Discussion & Analysis of Financial Condition and Results of Operations ( MD&A ) should be read in conjunction with the Company s 2017 Audited Consolidated Financial Statements located on the Company s Investor Relations website at www.libertymutualgroup.com/investors. The Company s discussions related to net income are presented in conformity with U.S. generally accepted accounting principles ( GAAP ) on an after-tax basis. All other discussions are presented on a pre-tax GAAP basis, unless otherwise noted. Further, the Company notes that it may make material information regarding the Company available to the public, from time to time, via the Company s Investor Relations website at www.libertymutualgroup.com/investors (or any successor site). Index Page Cautionary Statement Regarding Forward Looking Statements... 3 Executive Summary... 4 Consolidated Results of Operations... 7 Review of Financial Results by Business Unit Global Consumer Markets... 19 U.S. Consumer Markets... 21 Global Consumer Markets East West... 24 Commercial Insurance... 28 Global Specialty... 32 Corporate and Other... 36 Investments... 40 Liquidity and Capital Resources... 48 Reinsurance... 52 Critical Accounting Estimates... 55 About the Company... 59 2

Cautionary Statement Regarding Forward Looking Statements This report contains forward looking statements that are intended to enhance the reader s ability to assess the Company s future financial and business performance. Forward looking statements include, but are not limited to, statements that represent the Company s beliefs concerning future operations, strategies, financial results or other developments, and contain words and phrases such as may, expects, should, believes, anticipates, estimates, intends or similar expressions. Because these forward looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company s control or are subject to change, actual results could be materially different. Some of the factors that could cause actual results to differ include, but are not limited to the following: the occurrence of catastrophic events (including terrorist acts, hurricanes, hail, tornados, tsunamis, earthquakes, floods, snowfall and winter conditions); inadequacy of loss reserves; adverse developments involving asbestos, environmental or toxic tort claims and litigation; adverse developments in the cost, availability or ability to collect reinsurance; disruptions to the Company s relationships with its independent agents and brokers; financial disruption or a prolonged economic downturn; the performance of the Company s investment portfolios; a rise in interest rates; risks inherent in the Company s alternative investments in private limited partnerships ( LP ), limited liability companies ( LLC ), commercial mortgages and natural resource working interests; difficulty in valuing certain of the Company s investments; subjectivity in the determination of the amount of impairments taken on the Company s investments; unfavorable outcomes from litigation and other legal proceedings, including the effects of emerging claim and coverage issues and investigations by state and federal authorities; the Company s exposure to credit risk in certain of its business operations; the Company s inability to obtain price increases or maintain market share due to competition or otherwise; inadequacy of the Company s pricing models; changes to insurance laws and regulations; changes in the amount of statutory capital that the Company must hold to maintain its financial strength and credit ratings; regulatory restrictions on the Company s ability to change its methods of marketing and underwriting in certain areas; assessments for guaranty funds and mandatory pooling arrangements; a downgrade in the Company s claims-paying and financial strength ratings; the ability of the Company s subsidiaries to pay dividends to the Company; inflation, including inflation in medical costs and automobile and home repair costs; the cyclicality of the property and casualty insurance industry; political, legal, operational and other risks faced by the Company s international business; potentially high severity losses involving the Company s surety products; loss or significant restriction on the Company s ability to use credit scoring in the pricing and underwriting of personal lines policies; inadequacy of the Company s controls to ensure compliance with legal and regulatory standards; changes in federal or state tax laws; risks arising out of the Company s securities lending program; the Company s utilization of information technology systems and its implementation of technology innovations; difficulties with technology or data security; insufficiency of the Company s business continuity plan in the event of a disaster; the Company's ability to successfully integrate operations, personnel and technology from its acquisitions; insufficiency of the Company s enterprise risk management models and modeling techniques; and changing climate conditions. The Company s forward looking statements speak only as of the date of this report or as of the date they are made and should be regarded solely as the Company s current plans, estimates and beliefs. For a detailed discussion of these and other cautionary statements, visit the Company s Investor Relations website at www.libertymutualgroup.com/investors. The Company undertakes no obligation to update these forward looking statements. 3

EXECUTIVE SUMMARY The following highlights do not address all of the matters covered in the other sections of Management s Discussion & Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to the investing public. This summary should be read in conjunction with the other sections of Management s Discussion & Analysis of Financial Condition and Results of Operations and the Company s 2017 Audited Consolidated Financial Statements. Consolidated Results of Operations Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change Net written premium ( NWP ) $8,861 $8,145 8.8% $36,789 $33,857 8.7% Pre-tax operating income (loss) before partnerships, LLC and other equity method income (loss) 165 429 (61.5) (1,004) 1,485 NM Net operating income (loss) before partnerships, LLC and other equity method income (loss) 65 335 (80.6) (746) 1,124 NM Partnerships, LLC and other equity method income (loss), net of tax 65 (22) NM 371 3 NM Net realized gains (losses), net of tax 72 (42) NM 297 (81) NM Ironshore Inc. ( Ironshore ) acquisition & integration costs, net of tax (5) - NM (56) - NM Restructuring costs, net of tax (44) (46) (4.3) (59) (46) 28.3 Loss on extinguishment of debt, net of tax - (44) (100.0) (1) (49) (98.0) Discontinued operations, net of tax 52 25 108.0 213 118 80.5 Consolidated net income 205 206 (0.5) 19 1,069 (98.2) Less: Net income attributable to non-controlling interest - 63 (100.0) 2 63 (96.8) Net income attributable to LMHC 205 143 43.4 17 1,006 (98.3) Cash flow provided by continuing operations $360 $838 (57.0%) $1,824 $2,212 (17.5%) NM = Not Meaningful 4

Three Months Ended Change (Points) 2017 2016 Change (Points) 2017 2016 Combined ratio before catastrophes 1, net incurred losses attributable to prior years 2, and current accident year reestimation 3 94.6% 93.7% 0.9 94.1% 93.7% 0.4 Combined ratio 4 100.5% 97.0% 3.5 105.6% 98.3% 7.3 1 Catastrophes are defined as a natural catastrophe or terror event exceeding $25 million in estimated ultimate losses, net of reinsurance, and before taxes. Catastrophe losses, where applicable, include the impact of accelerated earned catastrophe premiums and earned reinstatement premiums. 2 Net incurred losses attributable to prior years is defined as incurred losses attributable to prior years (including prior year losses related to catastrophes and prior year catastrophe reinstatement premium) including earned premium attributable to prior years. 3 Re-estimation of the current accident year loss reserves for the nine months ended September 30, 2017 and 2016, respectively. 4 The combined ratio, expressed as a percentage, is a measure of underwriting profitability. This measure should only be used in conjunction with, and not in lieu of, underwriting income and may not be comparable to other performance measures used by the Company s competitors. The combined ratio is computed as the sum of the following property and casualty ratios: the ratio of claims and claim adjustment expense less managed care income to earned premium; the ratio of insurance operating costs plus amortization of deferred policy acquisition costs less third-party administration income and fee income (primarily related to the Company s involuntary market servicing carrier operations) and installment charges to earned premium; and the ratio of policyholder dividends to earned premium. Provisions for uncollectible premium and reinsurance are not included in the combined ratio unless related to an asbestos and environmental commutation and certain other run off. Restructuring and Ironshore acquisition and integration costs are not included in the combined ratio. As of As of $ in Millions 2017 2016 Change Short-term debt $11 $- NM Long-term debt 8,314 7,603 9.4 Total debt $8,325 $7,603 9.5% Unassigned equity $21,687 $21,670 0.1% Accumulated other comprehensive loss (1,026) (1,304) (21.3) Non-controlling interest 27 21 28.6 Total equity $20,688 $20,387 1.5% NM = Not Meaningful Subsequent Events On January 22, 2018, the Company s Spanish subsidiary, Liberty Seguros Compania de Seguros y Reaseguros S.A., entered into an agreement to sell its entire 99.44% interest in its Turkish insurance affiliate, Liberty Sigorta A.S., to Talanx International. Completion of the transaction is subject to regulatory approval in Turkey. On January 19, 2018, the Company announced the realignment of its businesses to enhance its ability to meet the changing needs of consumer and business customers. The Company s realignment will feature the following two businesses: Global Risk Solutions ( GRS ) which will bring together Liberty s Global Specialty, Ironshore (formerly in Global Specialty), National Insurance (formerly in Commercial Insurance) and the Global Reinsurance Strategy Group (formerly in Corporate & Other) into a single business. Dennis J. Langwell, formerly the Company s Chief Financial Officer, will lead GRS. Global Retail Markets ( GRM ) will combine Global Consumer Markets with Business Insurance and Accident and Health organizations (formerly in Commercial Insurance). Timothy Sweeney, formerly the President of Global Consumer Markets, will lead GRM. 5

Christopher L. Peirce, formerly the President of Global Specialty, will become Liberty s Chief Financial Officer. On January 19, 2018, the Company announced the sale of the Liberty Life Assurance Company ( LLAC ), which provides group disability, group life, individual life and annuity products, to Lincoln Financial Group. The companies expect to complete the transaction in the second quarter of 2018, pending regulatory approvals and other customary closing conditions. The results of LLAC are presented as discontinued operations in the accompanying Consolidated Statements of Income and are no longer included within Liberty Mutual Benefits in Commercial Insurance or within Corporate and Other. The prior periods have been restated to reflect this change. Management has assessed material subsequent events through February 26, 2018, the date the financial statements were available to be issued. 6

CONSOLIDATED RESULTS OF OPERATIONS The Company has identified consolidated pre-tax operating income ( PTOI ), PTOI before partnerships, LLC and other equity method income, and net operating income before partnerships, LLC and other equity method income as non-gaap financial measures. PTOI is defined by the Company as pre-tax income excluding net realized gains, loss on extinguishment of debt, extraordinary items, discontinued operations, integration, other acquisition and restructuring related costs and cumulative effects of changes in accounting principles. PTOI before partnerships, LLC and other equity method income is defined as PTOI excluding LP and LLC results recognized on the equity method and revenue and expenses from the production and sale of oil and gas. Net operating income is defined as net income excluding the after-tax impact of net realized gains, Ironshore acquisition and integration costs, restructuring costs and loss on extinguishment of debt. PTOI before partnerships, LLC and other equity method income, PTOI, and net operating income before partnerships, LLC and other equity method income are considered by the Company to be appropriate indicators of underwriting and operating results and are consistent with the way the Company internally evaluates performance. Net realized gains and partnerships, LLC and other equity method investment results are significantly impacted by both discretionary and economic factors and are not necessarily indicative of operating results, and the timing and amount of integration, other acquisition and restructuring related costs and the extinguishment of debt are not connected to the management of the insurance and underwriting aspects of the Company s business. Income taxes are significantly impacted by permanent differences. References to NWP represent the amount of premium recorded for policies issued during a fiscal period including audits, retrospectively rated premium related to loss sensitive policies, and assumed premium, less ceded premium. Assumed and ceded reinsurance premiums include premium adjustments for reinstatement of coverage when a loss has used some portion of the reinsurance provided, generally under catastrophe treaties ( reinstatement premium ), and changes in estimated premium. In addition, the majority of workers compensation premium is adjusted to the booked as billed method through the Corporate and Other segment. The Company believes that NWP is a performance measure useful to investors as it generally reflects current trends in the Company s sale of its insurance products. The Company s discussions related to net income are presented on an after-tax GAAP basis. All other discussions are presented on a pre-tax GAAP basis, unless otherwise noted. Property and casualty operations investment income is allocated to the business units based on planned ordinary investment income returns by investment category. Effective in 2017, the amount allocated to the business units was updated to better reflect the current yield environment. The difference between allocated net investment income and actual net investment income is included in Corporate and Other. The prior period has been adjusted to reflect this change. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (the Act ). The Act reduces the U.S. Federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. More details can be found in Critical Accounting Estimates under Deferred Income Taxes. On May 1, 2017, the Company acquired Ironshore for approximately $2.9 billion. Transaction related costs primarily consist of non-recurring banking, legal, tax, and accounting expenses. These expenses and integration related costs are reflected on the Consolidated Statements of Income separately. Concurrent with the acquisition, the Company combined its existing Liberty International Underwriters U.S. business and Ironshore s U.S. specialty lines business under the Ironshore brand. Effective May 1, 2017, the Company also entered into a reinsurance transaction with National Indemnity Company ( NICO ), a subsidiary of Berkshire Hathaway Inc., on a combined aggregate excess of loss agreement providing coverage for substantially all of Ironshore s reserves ( Ironshore Reinsurance ). On May 2, 2017, Ironshore exercised its option to redeem in full its outstanding $250 million Ironshore Holdings (US) Inc. 8.5% Senior Notes maturing in 2020 in accordance with the contractual make whole provisions. On April 17, 2017, the Company completed the acquisition of TRU Services, LLC, specializing in providing medical stop loss products to mid and large-size medical plan sponsors. The transaction is not material to the Company. On March 27, 2017, Liberty Mutual Finance Europe DAC ( LMFE ) issued 500 million par value of Senior Notes due 2024 (the 2024 Notes ). Interest is payable annually at a fixed rate of 1.75%. The 2024 Notes mature on March 27, 2024. 7

On February 27, 2017, the United Kingdom s Ministry of Justice announced a reduction in the discount rate utilized for certain lump sum personal injury compensation claims from 2.5% to (.75%) effective March 20, 2017. The Company s reserve estimation process provided for the impact of a range of events such as this. On January 5, 2017, the Company completed the sale of its 10 St. James and 75 Arlington properties. The Company has entered into a sale lease back agreement for such properties with a term of 15 years and resulting in a net lease obligation of $258 million. The sale resulted in a gain of $297 million, of which $188 million was deferred over the terms of the lease and $109 million was recognized in the Consolidated Statements of Income. On August 16, 2016, the Company entered into an agreement to sell a 51% interest in its Chinese operation to Sanpower Group. Regulatory changes made the timing and outcome of the transaction uncertain. On November 16, 2017, the Company and Sanpower Group confirmed the termination of the agreement effective on August 16, 2017. The Company s three SBUs are as follows: Global Consumer Markets comprises two market segments: U.S. Consumer Markets and Global Consumer Markets East West. These market segments comprise three operating regions: U.S. Consumer Markets, Global Consumer Markets East and Global Consumer Markets West. o o U.S. Consumer Markets includes all domestic personal lines business. Products are distributed through multiple distribution channels, including employee sales representatives, telesales counselors, independent agents, third-party producers and the Internet. Global Consumer Markets East West sells property and casualty, health and life insurance products and services to individuals and businesses in two operating regions: West, including Brazil, Colombia, Chile, Ecuador, Spain, Portugal, Ireland, and West Other; and East, including Thailand, Singapore, Hong Kong, Vietnam, Malaysia, India, China, Russia, Turkey, and East Other. Commercial Insurance offers a wide array of property and casualty coverages through independent agents, brokers and captive agents throughout the United States. Commercial Insurance is organized into the following three market segments: Business Insurance, National Insurance, and Other Commercial Insurance. Global Specialty comprises a wide array of products and services offered through four market segments: Liberty Specialty Markets ( LSM ), Liberty International Underwriters ( LIU ), Liberty Mutual Surety ( LM Surety ) and Ironshore. 8

Overview Consolidated Consolidated NWP by significant line of business was as follows: Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change Private passenger automobile $3,370 $3,192 5.6% $13,717 $12,788 7.3% Homeowners 1,469 1,452 1.2 6,295 6,129 2.7 Specialty insurance 1 1,015 633 60.3 3,608 2,512 43.6 Commercial multiple-peril 497 507 (2.0) 2,136 2,104 1.5 Commercial automobile 485 463 4.8 1,993 1,849 7.8 Workers compensation Voluntary 488 477 2.3 1,971 1,969 0.1 Workers compensation Involuntary 18 14 28.6 89 77 15.6 General liability 369 381 (3.1) 1,593 1,540 3.4 Global specialty reinsurance 244 162 50.6 1,450 1,158 25.2 Surety 187 175 6.9 827 807 2.5 Commercial property 170 165 3.0 726 766 (5.2) Global specialty inland marine 141 122 15.6 550 498 10.4 Corporate reinsurance 2 47 69 (31.9) 363 237 53.2 Other 3 361 333 8.4 1,471 1,423 3.4 Total NWP $8,861 $8,145 8.8% $36,789 $33,857 8.7% 1 Specialty insurance is reported within Global Specialty and includes marine, energy, construction, aviation, property, casualty, warranty and indemnity, excess casualty, directors and officers, errors and omissions, environmental impairment liability, railroad, trade credit, excess and surplus property, crisis management, contingent lines and other. 2 NWP associated with internal reinsurance, net of corporate external placements. 3 Primarily includes NWP from allied lines, domestic inland marine, and Life and health reported within Global Consumer Markets East West. NWP for the three months ended 2017 was $8.861 billion, an increase of $716 million over the same period in 2016. Significant changes by major line of business for the three months ended 2017 include: Private passenger automobile NWP increased $178 million. The increase reflects additional rate to keep pace with U.S. industry loss cost trends, partially offset by a decline in policies in-force in U.S. Consumer Markets. The increase also reflects organic growth in Global Consumer Markets East West driven by Brazil, Turkey, and Ireland. The quarter over quarter change was further impacted by favorable foreign exchange due to the U.S. dollar weakening versus the euro as compared to the average rates in 2016. Specialty insurance NWP increased $382 million. The quarter over quarter change reflects the Ironshore acquisition, business growth, and foreign exchange due to weakening of the U.S. dollar versus the Canadian dollar, euro, British pound and Australian dollar as compared to the average rates in 2016. Global specialty reinsurance NWP increased $82 million. The increase reflects business growth and includes favorable LSM premium adjustments. NWP for the twelve months ended 2017 was $36.789 billion, an increase of $2.932 billion over the same period in 2016. Significant changes by major line of business for the twelve months ended 2017 include: Private passenger automobile NWP increased $929 million. The increase reflects additional rate to keep pace with U.S. industry loss cost trends, partially offset by a decline in policies in-force in U.S. Consumer Markets. The increase also reflects organic growth in Global Consumer Markets East West driven by growth in Brazil, Ireland, Portugal, and India. The year over year change was further impacted by favorable foreign exchange due to the U.S. dollar weakening versus the Brazilian real and the euro as compared to the average rates in 2016. 9

Homeowners NWP increased $166 million. The increase reflects rate increases, as well as growth in homeowners policies in-force in U.S. Consumer Markets. Specialty insurance NWP increased $1.096 billion. The increase reflects the Ironshore acquisition and business growth, partially offset by lower LSM premium adjustments. Commercial automobile NWP increased $144 million. The increase reflects rate increases and exposure growth. Global specialty reinsurance NWP increased $292 million. The increase reflects business growth and includes catastrophe related reinstatement premiums. Corporate reinsurance NWP increased $126 million. The increase reflects increased premium on new and renewal internal programs, partially offset by increased spend on new ceded programs. The increased spend on new ceded programs is inclusive of an accounting change in the current period as to how reinsurance premiums on excess of loss contracts are reflected in our financials (ceded written premium is booked at inception versus over the life of the contract). More detailed explanations of the changes in NWP by line of business are included in the related discussion of financial results for each segment. Consolidated NWP by SBU was as follows: Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change Global Consumer Markets $5,388 $5,174 4.1% $22,320 $21,071 5.9% U.S. Consumer Markets 4,365 4,254 2.6 18,363 17,536 4.7 Global Consumer Markets East West 1,023 920 11.2 3,957 3,535 11.9 Commercial Insurance 1,848 1,811 2.0 7,698 7,506 2.6 Global Specialty 1,579 1,084 45.7 6,404 4,942 29.6 Corporate and Other 46 76 (39.5) 367 338 8.6 Total NWP $8,861 $8,145 8.8% $36,789 $33,857 8.7% Foreign exchange effect on growth 0.8 0.3 NWP growth excluding foreign exchange 1 8.0% 8.4% 1 Determined by assuming constant foreign exchange rates between periods. 10

Major drivers of NWP growth were as follows: Three Months Ended 1 Determined by assuming constant foreign exchange rates between periods. 2 NWP associated with internal reinsurance, net of corporate external placements. $ in Millions 2017 2016 $ Change Points Attribution 2017 2016 $ Change Points Attribution Total NWP $8,861 $8,145 $716 8.8 $36,789 $33,857 $2,932 8.7 Components of growth: Domestic personal automobile 2,705 2,620 85 1.1 11,237 10,614 623 1.8 Domestic homeowners 1,415 1,404 11 0.1 6,102 5,946 156 0.5 Global Consumer Markets East West Local Business (ex foreign exchange) 1 981 920 61 0.7 3,841 3,535 306 0.9 Specialty insurance (ex foreign exchange) 1 998 633 365 4.5 3,612 2,512 1,100 3.2 Domestic workers compensation 482 462 20 0.2 1,941 1,932 9 - Global specialty reinsurance (ex foreign exchange) 1 240 162 78 1.0 1,452 1,158 294 0.9 Corporate reinsurance (ex foreign exchange) 1,2 45 69 (24) (0.3) 361 237 124 0.4 Surety 179 167 12 0.1 796 774 22 0.1 Global specialty inland marine (ex foreign exchange) 1 139 122 17 0.2 551 498 53 0.2 Other lines 1,609 1,586 23 0.4 6,786 6,651 135 0.4 Foreign exchange 1 68-68 0.8 110-110 0.3 Total NWP $8,861 $8,145 $716 8.8 $36,789 $33,857 $2,932 8.7 Consolidated NWP by geographic distribution channels was as follows: Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change U.S. $7,065 $6,679 5.8% $29,750 $27,675 7.5% International 1 1,796 1,466 22.5 7,039 6,182 13.9 Global Consumer Markets East West 1,023 920 11.2 3,957 3,535 11.9 Global Specialty 1 773 546 41.6 3,082 2,647 16.4 Total NWP $8,861 $8,145 8.8% $36,789 $33,857 8.7% 1 Excludes domestically written business in Global Specialty s Ironshore market segment. For a more complete description of the Company s business operations, products and distribution channels, and other material information, please visit the Company s Investor Relations web site at www.libertymutualgroup.com/investors. 11

Results of Operations Consolidated Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change Revenues $10,228 $8,937 14.4% $39,409 $35,451 11.2% PTOI before catastrophes, net incurred losses attributable to prior years, current accident year re-estimation and partnerships, LLC and other equity method income (loss) $702 $777 (9.7%) $3,038 $3,121 (2.7%) Catastrophes 1 (450) (266) 69.2 (3,608) (1,674) 115.5 Net incurred losses attributable to prior years: - Asbestos and environmental 2 (6) (100) (94.0) (168) (141) 19.1 - All other 2,3 13 66 (80.3) (266) 179 NM Current accident year re-estimation 4 (94) (48) 95.8 - - - Pre-tax operating income (loss) before partnerships, LLC and other equity method income (loss) 165 429 (61.5) (1,004) 1,485 NM Partnerships, LLC and other equity method income (loss) 5 100 (30) NM 570 2 NM Pre-tax operating income (loss) 265 399 (33.6) (434) 1,487 NM Net realized gains (losses) 122 (74) NM 468 (125) NM Ironshore acquisition & integration costs (12) - NM (86) - NM Restructuring costs (68) (70) (2.9) (91) (70) 30.0 Loss on extinguishment of debt - (67) (100.0) (1) (76) (98.7) Pre-tax income (loss) 307 188 63.3 (144) 1,216 NM Income tax expense 154 7 NM 50 265 (81.1) Consolidated net income (loss) from continuing operations 153 181 (15.5) (194) 951 NM Discontinued operations, net of tax 52 25 108.0 213 118 80.5 Consolidated net income 205 206 (0.5) 19 1,069 (98.2) Less: Net income attributable to noncontrolling interest - 63 (100.0) 2 63 (96.8) Net income attributable to LMHC $205 $143 43.4% $17 $1,006 (98.3%) Cash flow provided by continuing operations before Ironshore Reinsurance and pension contributions $365 $839 (56.5%) $2,782 $3,017 (7.8%) Ironshore Reinsurance 6 - - - (550) - NM Pension contributions (5) (1) NM (408) (805) (49.3) Cash flow provided by continuing operations $360 $838 (57.0%) $1,824 $2,212 (17.5%) 1 Catastrophes are defined as a natural catastrophe or terror event exceeding $25 million in estimated ultimate losses, net of reinsurance, and before taxes. Catastrophe losses, where applicable, include the impact of accelerated earned catastrophe premiums and earned reinstatement premiums. 2 Asbestos and environmental is gross of the related adverse development reinsurance (the NICO Reinsurance Transaction ), and All other includes all cessions related to the NICO Reinsurance Transaction, which is described further in Reinsurance. 3 Net of earned premium and reinstatement premium attributable to prior years of ($25) million and ($23) million for the three and twelve months ended 2017, and ($6) million and ($13) million for the same periods in 2016. 4 Re-estimation of the current accident year loss reserves for the nine months ended September 30, 2017 and 2016, respectively. 5 Partnerships, LLC and other equity method income (loss) includes LP, LLC and other equity method income (loss) within net investment income in the accompanying Consolidated Statements of Income and revenue and expenses from the production and sale of oil and gas. 6 Ironshore reinsurance agreement, which is described further in Reinsurance. NM = Not Meaningful 12

Partnerships, LLC and Other Equity Method Income (Loss) Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change LP, LLC and other equity method income 1 $122 $15 NM $624 $146 NM Direct investment in natural resources revenues 2 68 50 36.0% 235 189 24.3% Direct investment in natural resources expenses 3 (90) (95) (5.3) (289) (333) (13.2) Partnerships, LLC and other equity method income (loss) $100 ($30) NM $570 $2 NM 1 Included within net investment income in the accompanying Consolidated Statements of Income. 2 Included within fee & other revenues in the accompanying Consolidated Statements of Income. 3 Included within operating costs and expenses in the accompanying Consolidated Statements of Income. NM = Not Meaningful Net Investment Income Three Months Ended $ in Millions 2017 2016 2017 2016 Taxable interest income $388 $353 $1,500 $1,422 Tax-exempt interest income 55 71 241 306 Dividends 13 13 60 54 LP, LLC and other equity method income 122 15 624 146 Commercial mortgage loans 18 19 76 76 Other investment income 2 2 7 14 Gross investment income 598 473 2,508 2,018 Investment expenses 1 (54) (40) (212) (169) Total net investment income $544 $433 $2,296 $1,849 1 Fees paid to external managers are included within the components of gross investment income. 13

Net Realized Gains (Losses) $ in Millions Sales & Dispositions Impairments Change in Derivatives Value Total Three Months Ended 2017: Fixed maturities $ 25 ($9) $ - $ 16 Equities 258 (3) - 255 Other 23 (177) 5 (149) Total $ 306 ($189) $ 5 $ 122 Three Months Ended 2016: Fixed maturities $28 ($8) $- $20 Equities 22 (82) - (60) Other (10) (75) 51 (34) Total $40 ($165) $51 ($74) Net Realized Gains (Losses) $ in Millions Sales & Dispositions Impairments Change in Derivatives Value Total 2017: Fixed maturities $ 135 ($23) $ - $ 112 Equities 540 (69) - 471 Other 136 (252) 1 (115) Total $ 811 ($344) $ 1 $ 468 2016: Fixed maturities $121 ($30) $- $91 Equities 60 (124) - (64) Other 22 (212) 38 (152) Total $203 ($366) $38 ($125) Fourth Quarter Results: Pre-tax operating income before partnerships, LLC and other equity method income (loss) for the three months ended 2017 was $165 million, a decrease of $264 million from the same period in 2016. The decrease reflects higher catastrophe losses primarily due to the California wildfires (net of expected recoveries on external reinsurance catastrophe treaties), higher current year losses (including losses across various commercial lines of business reflected in Commercial Insurance and Global Specialty and auto liability loss trends reflected in U.S. Consumer Markets), and favorable net incurred losses attributable to prior years in 2016 related to the reinsurance segment in Corporate. These losses were partially offset by less unfavorable asbestos and environmental development due to timing as development in 2017 was booked in the third quarter (NICO Reinsurance Transaction impact described further in Reinsurance ), the profit margin on growth in earned premium and a lower underwriting expense ratio primarily due to lower employee related costs in U.S. Consumer Markets, Commercial Insurance and Corporate. Partnerships, LLC and other equity method income (loss) including operating income from direct working interests for the three months ended 2017 was $100 million versus ($30) million for the same period in 2016. The increase reflects more favorable valuations in LP, LLC, and other equity method investments, with metals and mining, energy, traditional private equity investments all favorable as compared to the same period in 2016. Revenues for the three months ended 2017 were $10.228 billion, an increase of $1.291 billion over the same period in 2016. The major components of revenues are net premium earned, net investment income, net realized gains (losses), and fee and other revenues. Net premium earned for the three months ended 2017 was $9.321 billion, an increase of $927 million over the same period in 2016. The increase primarily reflects the premium earned associated with the changes in NWP previously discussed and the Ironshore acquisition. 14

Net investment income for the three months ended 2017 was $544 million, an increase of $111 million over the same period in 2016. The increase reflects more favorable valuations in LP, LLC and other equity method investments, with metals and mining, energy and traditional private equity investments all favorable as compared to the same period in 2016. The increase also reflects a higher invested asset base primarily driven by Ironshore. Net realized gains (losses) for the three months ended 2017 were $122 million versus ($74) million for the same period in 2016. The increase in net realized gains primarily relates to equity gains realized from sales due to portfolio repositioning in 2017, partially offset by higher impairments on internally developed software compared to 2016. Fee and other revenues for the three months ended 2017 were $241 million, an increase of $57 million over the same period in 2016. The increase was primarily driven by higher oil and gas revenues as a result of increased prices and production, the Ironshore acquisition and higher billing fees in U.S. Consumer Markets. Claims, benefits and expenses for the three months ended 2017 were $9.841 billion, an increase of $1.229 billion over the same period in 2016. The increase reflects higher catastrophe losses primarily due to the California wildfires (net of expected recoveries on external reinsurance catastrophe treaties), business growth, higher current year losses (including losses across various commercial lines of business reflected in Commercial Insurance and Global Specialty and auto liability loss trends reflected in U.S. Consumer Markets), and favorable incurred losses attributable to prior years in 2016 related to the reinsurance segment in Corporate. These losses were partially offset by less unfavorable asbestos and environmental development due to timing as development in 2017 was booked in the third quarter (NICO Reinsurance Transaction impact described further in Reinsurance ). Restructuring costs for the three months ended 2017 were $68 million, a decrease of $2 million from the same period in 2016. Loss on extinguishment of debt for the three months ended 2017 was zero versus $67 million for the same period in 2016. The Company repurchased zero and $108 million of the 10.75% Junior Subordinated notes due 2088 during the three months ended 2017 and 2016, respectively. Income tax expense on continuing operations for the three months ended 2017 was $154 million, an increase of $147 million over the same period in 2016. The Company s effective tax rate on continuing operations for the three months ended 2017 was 50%, compared to 4% for the same period in 2016. The increase in the effective tax rate on continuing operations from 2016 to 2017 was primarily driven by the impact of the Act, offset by a benefit for partial completion of the IRS examination covering tax years 2010 and 2011, and the decrease in the valuation allowance of certain foreign subsidiaries. The Company s effective tax rate on continuing operations differs from the U.S. Federal statutory rate of 35% principally due to tax-exempt investment income and the impact of the Act. Discontinued operations, net of tax, for the three months ended 2017 were $52 million, an increase of $27 million over the same period in 2016. Net income attributable to LMHC for the three months ended 2017 was $205 million, an increase of $62 million over the same period in 2016. Cash flow provided by continuing operations for the three months ended 2017 was $360 million, a decrease of $478 million from the same period in 2016. The decrease reflects higher loss payments across most business units primarily due to higher catastrophe payments, business growth and unfavorable domestic auto liability loss trends, partially offset by higher premium collections in Global Consumer Markets driven by business growth. Year-to-date Results: Pre-tax operating loss before partnerships, LLC and other equity method income for the twelve months ended 2017 was $1.004 billion versus pre-tax operating income before partnerships, LLC and other equity method income of $1.485 billion for the same period in 2016. The change reflects higher catastrophe losses primarily due to Hurricanes Harvey, Irma, and Maria, the California wildfires and hailstorms in Texas and Colorado (net of 15

expected recoveries on external reinsurance catastrophe treaties), the impact of unfavorable domestic auto liability loss trends reflected in U.S. Consumer Markets and Commercial Insurance and higher losses within the reinsurance segment in Corporate. The change also reflects lower favorable net incurred losses attributable to prior years in Global Specialty, partially offset by the profit margin on growth in earned premium and a lower underwriting expense ratio primarily due to lower employee related costs in U.S. Consumer Markets, Commercial Insurance and Corporate. Partnerships, LLC and other equity method income including operating income from direct working interests for the twelve months ended 2017 was $570 million, an increase of $568 million over the same period in 2016. The increase reflects more favorable valuations in LP, LLC, and other equity method investments, primarily traditional private equity and energy, in 2017 as compared to the same period in 2016. Revenues for the twelve months ended 2017 were $39.409 billion, an increase of $3.958 billion over the same period in 2016. The major components of revenues are net premium earned, net investment income, net realized gains (losses), and fee and other revenues. Net premium earned for the twelve months ended 2017 was $35.789 billion, an increase of $2.802 billion over the same period in 2016. The increase primarily reflects the premium earned associated with the changes in NWP previously discussed and the Ironshore acquisition. Net investment income for the twelve months ended 2017 was $2.296 billion, an increase of $447 million over the same period in 2016. The increase reflects more favorable valuations in LP, LLC, and other equity investments, primarily traditional private equity and energy. The increase also reflects a higher invested asset base primarily driven by Ironshore. Net realized gains (losses) for the twelve months ended 2017 were $468 million versus ($125) million for the same period in 2016. The increase in net realized gains primarily relates to gains from sales due to portfolio repositioning and a $109 million gain on the sale of the Company s 10 St. James and 75 Arlington properties. In addition, 2017 reflects lower impairments on direct investment in oil and gas wells, partially offset by higher impairments on internally developed software compared to 2016. Fee and other revenues for the twelve months ended 2017 were $856 million, an increase of $116 million over the same period in 2016. The increase was primarily driven by higher billing fees in U.S. Consumer Markets, the Ironshore acquisition, and higher oil and gas revenues as a result of increased prices and production. Claims, benefits and expenses for the twelve months ended 2017 were $39.375 billion, an increase of $5.286 billion over the same period in 2016. The increase reflects higher catastrophe losses primarily due to Hurricanes Harvey, Irma, and Maria, the California wildfires and hailstorms in Texas and Colorado (net of expected recoveries on external reinsurance catastrophe treaties), business growth, the impact of unfavorable domestic auto liability loss trends reflected in U.S. Consumer Markets and Commercial Insurance and higher losses within the reinsurance segment in Corporate. The increase also reflects lower favorable incurred losses attributable to prior years in Global Specialty, partially offset by lower employee related costs in U.S. Consumer Markets, Commercial Insurance and Corporate. Restructuring costs for the twelve months ended 2017 were $91 million, an increase of $21 million over the same period in 2016. Loss on extinguishment of debt for the twelve months ended 2017 was $1 million, a decrease of $75 million from the same period in 2016. The Company repurchased $2 million and $125 million of the 10.75% Junior Subordinated notes due 2088 during the twelve months ended 2017 and 2016, respectively. Income tax expense on continuing operations for the twelve months ended 2017 was $50 million, a decrease of $215 million from the same period in 2016. The Company s effective tax rate on continuing operations for the twelve months ended 2017 was (35%), compared to 22% for the same period in 2016. For the twelve months ended 2017, the Company reported an income tax expense on a pre-tax loss, compared to reporting an income tax expense on pre-tax income for the twelve months ended 2016. The decrease 16

in the effective tax rate on continuing operations from 2016 to 2017 was driven by the impact of the Act primarily offset by lower pre-tax income. The Company s effective tax rate on continuing operations differs from the U.S. Federal statutory rate of 35% principally due to tax-exempt investment income and the impact of the Act. Discontinued operations, net of tax, for the twelve months ended 2017 were $213 million, an increase of $95 million over the same period in 2016. Net income attributable to LMHC for the twelve months ended 2017 was $17 million, a decrease of $989 million from the same period in 2016. Cash flow provided by continuing operations for the twelve months ended 2017 was $1.824 billion, a decrease of $388 million from the same period in 2016. The decrease reflects a payment for Ironshore Reinsurance and higher loss payments across most business units primarily due to higher catastrophe payments, business growth and unfavorable domestic auto liability loss trends, partially offset by lower pension funding, higher premium collections in Global Consumer Markets driven by business growth, and the Ironshore acquisition. Three Months Ended Change (Points) 2017 2016 Change (Points) CONSOLIDATED 2017 2016 Combined ratio before catastrophes, net incurred losses attributable to prior years and current accident year re-estimation Claims and claim adjustment expense ratio 64.8% 62.6% 2.2 64.5% 62.7% 1.8 Underwriting expense ratio 29.8 31.1 (1.3) 29.6 31.0 (1.4) Subtotal 94.6 93.7 0.9 94.1 93.7 0.4 Catastrophes 1 4.8 3.2 1.6 10.1 5.1 5.0 Net incurred losses attributable to prior years: - Asbestos and environmental 0.1 0.4 (0.3) 0.5 0.1 0.4 - All other 2 - (0.9) 0.9 0.9 (0.6) 1.5 Current accident year re-estimation 3 1.0 0.6 0.4 - - - Total combined ratio 4 100.5% 97.0% 3.5 105.6% 98.3% 7.3 1 Catastrophes are defined as a natural catastrophe or terror event exceeding $25 million in estimated ultimate losses, net of reinsurance, and before taxes. Catastrophe losses, where applicable, include the impact of accelerated earned catastrophe premiums and earned reinstatement premiums. 2 Net of earned premium and reinstatement premium attributable to prior years. 3 Re-estimation of the current accident year loss reserves for the nine months ended September 30, 2017 and 2016, respectively. 4 The combined ratio, expressed as a percentage, is a measure of underwriting profitability. This measure should only be used in conjunction with, and not in lieu of, underwriting income and may not be comparable to other performance measures used by the Company s competitors. The combined ratio is computed as the sum of the following property and casualty ratios: the ratio of claims and claim adjustment expense less managed care income to earned premium; the ratio of insurance operating costs plus amortization of deferred policy acquisition costs less third-party administration income and fee income (primarily related to the Company s involuntary market servicing carrier operations) and installment charges to earned premium; and the ratio of policyholder dividends to earned premium. Provisions for uncollectible premium and reinsurance are not included in the combined ratio unless related to an asbestos and environmental commutation and certain other run off. Restructuring and Ironshore acquisition and integration costs are not included in the combined ratio. Fourth Quarter Results: The consolidated combined ratio before catastrophes, net incurred losses attributable to prior years, and current accident year re-estimation for the three months ended 2017 was 94.6%, an increase of 0.9 points over the same period in 2016. The claims and claim adjustment expense ratio reflects higher current year losses across various commercial lines of business reflected in Commercial Insurance and Global Specialty and auto liability loss trends reflected in U.S. Consumer Markets. The decrease in the underwriting expense ratio reflects lower employee 17

related costs in U.S. Consumer Markets, Commercial Insurance and Corporate and, more significantly, the impact of premium rate increases. Including the impact of catastrophes, net incurred losses attributable to prior years, and current accident year reestimation, the total combined ratio for the three months ended 2017 was 100.5%, an increase of 3.5 points over the same period in 2016. The increase reflects higher catastrophe losses, favorable prior year development in 2016, higher current accident year re-estimation in 2017 and increases in the combined ratio previously discussed, partially offset by less unfavorable asbestos and environmental development due to timing as development in 2017 was booked in the third quarter. Year-to-date Results: The consolidated combined ratio before catastrophes and net incurred losses attributable to prior years for the twelve months ended 2017 was 94.1%, an increase of 0.4 points over the same period in 2016. The claims and claim adjustment expense ratio reflects higher loss trends in the auto lines of business in U.S. Consumer Markets and Commercial Insurance and higher losses within the reinsurance segment in Corporate. The decrease in the underwriting expense ratio reflects lower employee related costs in U.S. Consumer Markets, Commercial Insurance and Corporate and, more significantly, the impact of premium rate increases. Including the impact of catastrophes and net incurred losses attributable to prior years, the total combined ratio for the twelve months ended 2017 was 105.6%, an increase of 7.3 points over the same period in 2016. The increase reflects the increases in the combined ratio already discussed, higher catastrophe losses, unfavorable net incurred losses attributable to prior years in commercial auto in Commercial Insurance, and lower favorable net incurred losses attributable to prior years in Global Specialty. 18

Overview Global Consumer Markets GLOBAL CONSUMER MARKETS Global Consumer Markets combines the Company s local expertise in growth markets outside the U.S. with strong and scalable U.S. personal lines capabilities in order to take advantage of opportunities to grow its business globally. U.S. Consumer Markets and Global Consumer Markets East West are market segments of Global Consumer Markets. During the quarter ended June 30, 2016, Global Consumer Markets was reorganized into three operating regions: U.S. Consumer Markets, Global Consumer Markets East and Global Consumer Markets West. Global Consumer Markets NWP by market segment was as follows: Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change U.S. Consumer Markets $4,365 $4,254 2.6% $18,363 $17,536 4.7% Global Consumer Markets East West 1,023 920 11.2 3,957 3,535 11.9 Total NWP $5,388 $5,174 4.1% $22,320 $21,071 5.9% Results of Operations Global Consumer Markets Three Months Ended $ in Millions 2017 2016 Change 2017 2016 Change Revenues $5,734 $5,514 4.0% $22,585 $21,501 5.0% PTOI before catastrophes, net incurred losses attributable to prior years and current accident year re-estimation $671 $625 7.4% $2,476 $2,268 9.2% Catastrophes 1 (715) (162) NM (2,221) (1,227) 81.0 Net incurred losses attributable to prior years 6 3 100.0 43 16 168.8 Current accident year re-estimation 2 (56) (10) NM - - - Pre-tax operating (loss) income ($94) $456 NM $298 $1,057 (71.8%) 1 Catastrophes are defined as a natural catastrophe or terror event exceeding $25 million in estimated ultimate losses, net of reinsurance, and before taxes. Catastrophe losses, where applicable, include the impact of accelerated earned catastrophe premiums and earned reinstatement premiums. 2 Re-estimation of the current accident year loss reserves for the nine months ended September 30, 2017 and 2016, respectively. NM = Not Meaningful 19